Whether Congress finally enacts pension reform, and how that reform will look, looms in the background as Congress continues to debate (and modify), the $1.9 trillion COVID-19 relief bill currently floating around Capitol Hill. The bill, called the “American Rescue Plan Act of 2021,” was recently modified by the Senate and is with the House of Representatives for final approval. If the House does what is expected and passes the bill without any changes, then pension reform for the most distressed retirement plans will finally be a reality.
The path to pension reform has been a winding one, and this most recent stretch began with the House including the Emergency Pension Plan Relief Act (“EPPRA”) in the original COVID-19 relief bill. The pension reform portion then had to be reviewed (and approved) by the Senate parliamentarian since Congress elected to pass the legislation under the reconciliation process. On March 1, 2021, the Senate parliamentarian approved EPPRA under Senate budgetary rules, thereby paving the way for actual reform.
The House version expands the ability of struggling multiemployer pension plans to request a “partition” of a portion of the benefits otherwise due from the plan. If granted, the liability for those benefits carved out from the original plan would shift to the PBGC. This relief would enable a plan to stabilize its funding outlook. It also increased the PBGC guarantee for participants in multiemployer plans, allowed plans to amortize 2019 and 2020 investment losses over a 30-year period, and repealed benefit suspensions previously allowed under the Multiemployer Pension Reform Act (“MPRA”).
The Senate’s version is slightly different. Instead of shifting (or “partitioning”) a portion of the benefits to the PBGC, plans would retain that liability but can request financial assistance from the PBGC. The financial assistance would be a lumpsum payment intended to cover the next thirty (30) years of benefits due. The funds could be used both the pay benefits and plan expenses.
Of course, there are strings attached under the Senate bill. For example, the PBGC can place restrictions on plans that receive financial assistance, such as limiting future accruals or reductions in employer contributions. The funds must also be segregated and there are restrictions on how the money can be invested. The Senate’s bill provides that plan which receive the financial assistance can only invest the money in investment grade bonds or other investments later approved by the PBGC.
Ultimately, the pension reform bills passed by the House and Senate lead to the same spot; the federal government picks up the tab for seriously underfunded multiemployer plans without imposing any costs directly on those plans, or their participating employers, unions, participants, and retirees. Therefore, we are talking about a huge relief for many severely underfunded pension plans if this gets passed.